Revisions to Rules 587, 588 and 622

To

Members, Member Firms and Market Users

From

Market Regulation Department

#

SER-5512

Notice Date

07 December 2010

Effective Date

07 December 2010

Effective December 7, 2010, CME, CBOT, NYMEX and COMEX will adopt amendments to Rules 587 (“Phantom Orders”), 588 (“Trade Cancellations and Price Adjustments”) and 622 (“Claims Relating to Trade Cancellations or Price Adjustments”).The amendments eliminate the use of the words “bust” and “no-bust” range in the rules and are being replaced with “cancel” or “cancellation” and “non-reviewable” range, respectively.Over the last several years, the exchanges have moved from cancelling (busting) error trades on the CME Globex electronic trading platform to adjusting trade prices pursuant to Rule 588. The changes are intended to more accurately reflect current business practices.

The revisions are set forth below, with additions underscored and deletions overstruck.

The following shall be applied to balance the adverse effects on market integrity of executing trades and publishing trade information inconsistent with prevailing market conditions while preserving legitimate expectations of trade certainty by market participants.This rule authorizes the Globex Control Center (“GCC”) to adjust trade prices or cancel (bust) trades when such action is necessary to mitigate market disrupting events caused by the improper or erroneous use of the electronic trading system or by system defects.Notwithstanding any other provisions of this rule, the GCC may adjust trade prices or bustcancel any trade if the GCC determines that allowing the trade to stand as executed may have a material, adverse effect on the integrity of the market.All decisions of the GCC shall be final.

588.B.Review of Trades

The GCC may determine to review a trade based on its independent analysis of market activity or upon request for review by a user of the electronic trading system.A request for review must be made within eight minutes of the execution of the trade.

The GCC shall determine whether or not a trade will be subject to review.In the absence of a timely request for review, during volatile market conditions, upon the release of significant news, or in any other circumstance in which the GCC deems it to be appropriate, the GCC may determine, in its sole discretion, that a trade shall not be subject to review.

Upon deciding to review a trade, the GCC will promptly issue an alert indicating that the trade is under review.

588.C.Price Adjustments and Cancellations

Upon making a determination that a trade will be subject to review, the GCC will first determine whether the trade price is within the No BustNon-Reviewable Range for futures or within the Bid/Ask Reasonability Allowance for options, as described in Section G.The Bid/Ask Reasonability Allowance for an option is the maximum width of the bid/ask range which will be considered reasonable for use in applying the parameters necessary to establish the No BustNon-Reviewable Range for the option.In applying the No BustNon-Reviewable Range, the GCC shall determine the fair value market price for that contract at the time the trade under review occurred.The GCC may consider any relevant information, including, but not limited to, the last trade price in the contract or a better bid or offer price on the electronic trading system, a more recent price in a different contract month, the price of the same or related contract established in another venue or another market, the market conditions at the time of the trade, the theoretical value of an option based on the most recent implied volatility and responses to a Request for Quote (RFQ).

1.Trade Price Inside the No BustNon-Reviewable Range

If the GCC determines that the price of the trade is inside the No BustNon-Reviewable Range, the GCC will issue an alertindicating that the trade shall stand.

2.Trade Price Outside the No BustNon-Reviewable Range

a.Futures Contracts

If the GCC determines that a trade price is outside the No BustNon-Reviewable Range for a futures contract (includingfutures spreads), the trade price shall be adjusted to a price that equals the fair value market price for that contract at the timethe trade under review occurred, plus or minus the No BustNon-Reviewable Range.In the event there are multiple parties,prices and/or contracts involved in the transactions at issue, the GCC has the authority, but not the obligation, to bustcancel rather than price adjust such transactions. The GCC will issue an alert regarding its decision.

b.Option Contracts

If the GCC determines that a trade price is outside the applicable No BustNon-Reviewable Range for an option contract, thetrade price shall be adjusted.In the case of a buy (sell) error, the price will be adjusted to the determined ask (bid) price set forth in the Bid/Ask Reasonability Allowance in Section G. plus (minus) the No BustNon-Reviewable Range.In the event thereare multiple parties, prices and/or contracts involved in the transactions at issue, the GCC has the authority, but not the obligation, to bustcancel rather than price adjust such transactions.The GCC will issue an alert regarding its decision.

CancelledBusted trade prices and any prices that have been adjusted shall be cancelled in the Exchange’s official record of time and sales.Trades that are price adjusted shall be inserted in the time and sales record at the adjusted trade price.

588.D.Alternative Resolution by Agreement of Parties

With the approval of the GCC, parties to a trade that is price adjusted may instead mutually agree to bustcancel the trade.With the approval of the GCC, parties to a trade that is bustedcancelled may instead mutually agree to price adjust the trade to a price consistent with the adjustment provisions of Section C.

Parties to a trade that is bustedcancelled or price adjusted may mutually agree to a cash adjustment provided that such adjustments are reported to the GCC and the parties maintain a record of the adjustment.

An executed trade may not be reversed via transfer except where such trade is determined by GCC to be outside of the No BustNon-Reviewable Range but not reported timely, subject to agreement of the parties and approval of the GCC.Any such transfer must occur at the original trade price and quantity; however the parties may mutually agree to a cash adjustment.

A trade that is not bustedcancelled may not be reversed via a prearranged offsetting transaction unless such transactions are permitted and effected in accordance with Rule 539.C.

588.E.Liability for Losses Resulting from Price Adjustments or Cancellations

A party entering an order that results in a price adjustment or trade bustcancellation shall be responsible for demonstrated claims of realized losses incurred by persons whose trade prices were adjusted or bustedcancelled provided, however, that a claimant shall not be entitled to compensation for losses incurred as a result of the claimant’s failure to take reasonable actions to mitigate the loss.

A claim for a loss pursuant to this section must be submitted to the Exchange on an Exchange claim form within five business days of the event giving rise to the claim.The Exchange shall reject any claim that is not filed in a timely manner or is not permitted by this section and such decisions shall be final.Eligible claims shall be forwarded by the Exchange to the party responsible for the order(s) that resulted in a trade bustcancellation or a price adjustment and to the clearing member through which the trade was placed.Such party, or the clearing member on behalf of the party, shall, within ten business days of receipt of the claim, admit or deny responsibility in whole or in part.Failure to respond to the claim within ten business days shall be considered a denial of liability.

To the extent that liability is admitted, payment shall be made within ten business days. Unless otherwise agreed upon in writing by the parties, failure to make the payment within ten business days shall be considered a denial of liability for purposes of this rule.A copy of any such written agreement must be provided to the Exchange.

To the extent that liability is denied, the party making the claim may submit the claim to arbitration in accordance with Rule 622.Such claims must be submitted to the Market Regulation Department within ten business days of the date the party was issued notification that liability was denied.

588.F.Schedule of Administrative Fees

When GCC bustscancels or price adjusts a trade, the party responsible for entering the order into the electronic trading system that gave rise to the trade bustcancellation or price adjustment shall pay an administrative fee to the Exchange in the amount of $500 for each such occurrence.If the party is not deemed a Member as defined in Rule 400 and fails to pay the fee, the clearing member through which the trade was placed shall be responsible for payment of the fee.

588.G.No BustNon-Reviewable Trading Ranges

Futures ContractNo-BustNon-Reviewable Range

[The Futures Non-Reviewable Trading Ranges are unchanged.]

Futures Combinations

Eurodollar Combinations 2.5 basis points

Non-Eurodollar, Non-Implied Eligible, Intra-Commodity Futures

Spreads5 ticks

Implied Eligible Inter- and Intra-Commodity Futures SpreadsSame as the no bustnon-reviewablerange of the individual legs

Inter-Commodity Futures SpreadsThe wider of the no bustnon-reviewableranges of the two individual legs

Option ContractBid/Ask ReasonabilityNo-BustNon-Reviewable Range

Eurodollars/Euroyen

The greater of the delta times the underlying futures no bustnon-reviewable range or 20% of the fair value premium up to the underlying futures no bustnon-reviewable range with a minimum reasonability of 1 basis point

2 minimum ticks

30 Year Bond

The greater of the delta times 12/64ths or 20% of the fair value premium up to 12/64ths with a minimum reasonability of 2/64ths

20% of the premium up to 2/64ths

U.S. Treasuries (2, 5, 10 Year Notes)

The greater of the delta times 10/64ths or 20% of the fair value premium up to 10/64ths with a minimum reasonability of 2/64ths

20% of the premium up to 2/64ths

30-Day Fed Funds

The greater of the delta times the underlying futures no bustnon-reviewable range or 20% of the fair value premium up to the underlying futures no bustnon-reviewable range with a minimum reasonability of 2 basis points

20% of the premium up to ¼ of the underlying futures no bustnon-reviewable range

Interest Rate Swaps (5, 7, 10, 30)

The greater of the delta times the underlying futures no bustnon-reviewable range or 20% of the fair value premium up to the underlying futures no bustnon-reviewable range with a minimum reasonability of 5/64ths

20% of the premium up to ¼ of the underlying futures no bustnon-reviewable range

3 Month Overnight Index Swaps

The greater of the delta times the underlying futures no bustnon-reviewable range or 20% of the fair value premium up to the underlying futures no bustnon-reviewable range with a minimum reasonability of 3 basis points

20% of premium up to ¼ of the underlying futures no bustnon-reviewable range

Equities (excluding DJIA)

The greater of the delta times the underlying futures no bustnon-reviewable range or 20% of the fair value premium up to the underlying futures no bustnon-reviewable range with a minimum reasonability of 1.00 index point

20% of premium up to ¼ of the underlying futures no bustnon-reviewable range

DJIA

The greater of the delta times the underlying futures no bustnon-reviewable range or 20% of the fair value premium up to the underlying futures no bustnon-reviewable range with a minimum reasonability of 10 index points

20% of premium up to ¼ of the underlying futures no bustnon-reviewable range

FX

The greater of the delta times the underlying futures no bustnon-reviewable range or 5% of the fair value premium up to the underlying futures no bustnon-reviewable range with a minimum reasonability of 10 ticks

20% of premium up to ¼ of the underlying futures no bustnon-reviewable range

Agricultural (excluding Grains, Oil & Meal)

The greater of the delta times the underlying futures no bustnon-reviewable range or 20% of the fair value premium up to the underlying futures no bustnon-reviewable range with a minimum reasonability of $.005

20% of premium up to ¼ of the underlying futures no bustnon-reviewable range

Grains

The greater of the delta times the underlying futures non-reviewable range or 20% of the fair value premium up to the underlying futures non-reviewable range with a minimum reasonability of $.01

20% of premium up to ¼ of the underlying futures non-reviewable range

Soybean Oil

The greater of the delta times the underlying futures no bustnon-reviewable range or 20% of the fair value premium up to the underlying futures no bustnon-reviewable range with a minimum reasonability of $.0005

20% of premium up to ¼ of the underlying futures no bustnon-reviewable range

Soybean Meal

The greater of the delta times the underlying futures no bustnon-reviewable range or 20% of the fair value premium up to the underlying futures no bustnon-reviewable range with a minimum reasonability of $.50

20% of premium up to ¼ of the underlying futures no bustnon-reviewable range

Non-Farm Payroll

None

None

Ethanol

The greater of the delta times the underlying futures no bustnon-reviewable range or 20% of the fair value premium up to the underlying futures no bustnon-reviewable range with a minimum reasonability of $.02

20% of premium up to ¼ of the underlying futures no bustnon-reviewable range

MGEX Options

The greater of the delta times the underlying futures no bustnon-reviewable range or 20% of the fair value premium up to the underlying futures no bustnon-reviewable range with a minimum reasonability of $.01

20% of premium up to ¼ of the underlying futures no bustnon-reviewable range

KCBT Options

The greater of the delta times the underlying futures no bustnon-reviewable range or 20% of the fair value premium up to the underlying futures no bustnon-reviewable range with a minimum reasonability of $.01

20% of premium up to ¼ of the underlying futures no bustnon-reviewable range

Random Length Lumber

The greater of the delta times the underlying futures no bustnon-reviewable range or 20% of the fair value premium up to the underlying futures no bustnon-reviewable range with a minimum reasonability of $2.00

20% of premium up to ¼ of the underlying futures no bustnon-reviewable range

NYMEX Crude Oil, Cracks

The greater of the delta times the underlying futures no bustnon-reviewable range or 20% of the fair value premium up to the underlying futures no bustnon-reviewable range with a minimum reasonability of $.10

20% of premium up to ¼ of the underlying futures no bustnon-reviewable range

NYMEX Heating Oil

The greater of the delta times the underlying futures no bustnon-reviewable range or 20% of the fair value premium up to the underlying futures no bustnon-reviewable range with a minimum reasonability of $.0076

20% of premium up to ¼ of the underlying futures no bustnon-reviewable range

NYMEX RBOB

The greater of the delta times the underlying futures no bustnon-reviewable range or 20% of the fair value premium up to the underlying futures no bustnon-reviewable range with a minimum reasonability of $.0076

20% of premium up to ¼of the underlying futures no bustnon-reviewable range

NYMEX Natural Gas

The greater of the delta times the underlying futures no bustnon-reviewable range or 20% of the fair value premium up to the underlying futures no bustnon-reviewable range with a minimum reasonability of $.05

20% of premium up to ¼ of the underlying futures no bustnon-reviewable range

COMEX Gold

The greater of the delta times the underlying futures no bustnon-reviewable range or 20% of the fair value premium up to the underlying futures no bustnon-reviewable range with a minimum reasonability of $2.00

20% of premium up to ¼ of the underlying futures no bustnon-reviewable range

COMEX Silver

The greater of the delta times the underlying futures no bustnon-reviewable range or 20% of the fair value premium up to the underlying futures no bustnon-reviewable range with a minimum reasonability of $.05

20% of premium up to ¼ of the underlying futures no bustnon-reviewable range

COMEX Copper

The greater of the delta times the underlying futures no bustnon-reviewable range or 20% of the fair value premium up to the underlying futures no bustnon-reviewable range with a minimum reasonability of $.01

20% of premium up to ¼ of the underlying futures no bustnon-reviewable range

[The remainder of the Rule is unchanged.]

587.PHANTOM ORDERS

587.A.Definition

[Section A. is unchanged.]

587.B.Permissible Responses

If the Exchange has reason to believe that phantom orders have been or are being entered into and/or executed on any Exchange system, service or facility, the Exchange shall be empowered to take appropriate action with respect to any affected market, including without limitation, closing the market, deleting bids and offers, and/or suspending new bids and offers.

The Exchange shall promptly give notice that all Globex transactions that were directly or indirectly caused by the execution of phantom orders and were executed at prices outside of the no-bustnon-reviewable range, as determined in accordance with Rule 588, shall be voided. The Exchange shall have no liability or responsibility to the parties to any transactions that are voided pursuant to this paragraph.

The Exchange shall also be empowered to void Globex transactions that were directly or indirectly caused by the execution of phantom orders and were executed at prices within the no-bustnon-reviewable range or phantom orders that were executed in the pit if the Exchange concludes that such transactions impair the integrity of the market. The Exchange’s liability for voiding transactions within the no-bustnon-reviewable range or voiding transactions executed in the pit is limited as provided in paragraph C.

587.C.Limitation of Liability

Any liability of the Exchange for transactions voided by the Exchange that are within the no-bustnon-reviewable range shall be subject to the limitations and conditions of Rule 578.

[The remainder of the Rule is unchanged.]

622. CLAIMS RELATING TO TRADE CANCELLATIONS OR PRICE ADJUSTMENTS

622.A.General

All claims relating to price adjustments or trade bustscancellations pursuant to Rule 588 shall be arbitrated in accordance with the specific requirements of this Rule 622 and, to the extent not inconsistent with such requirements, the rules of this Chapter.

622.B.Initiation of Claim

Any claim for loss under Rule 588 must first be submitted to the Exchange as described in Rule 588.E. Following a denial of liability by a party responsible for a trade bustcancellation or price adjustment and by the clearing firm through which the trade was placed, the claimant may file an arbitration claim with the Market Regulation Department. The Market Regulation Department shall administer the arbitration and provide notice to all parties.

The party alleged to have made the trade that caused the trade bustcancellation or price adjustment and the clearing firm through which that trade was placed both may be respondents in the arbitration. Any party responsible for a trade bustcancellation or price adjustment who is not otherwise subject to arbitration under these rules may voluntarily submit to such arbitration by filing a submission agreement with the Market Regulation Department within 21 days of that party’s receipt of notice of the referral to arbitration. In the absence of the voluntary submission to arbitration by such party, the arbitration shall proceed solely against the clearing firm through which the trade was placed, and that firm shall be liable for any damages awarded by the panel.

622.C.Related Claims

All claims arbitrable under this rule that arise out of a trade bustcancellation or price adjustment that was caused by the same incident shall, to the extent practicable in the determination of the chairman, be consolidated for a single hearing.

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